Murdoch ‘swan song’ as natives threaten trad media

As the UK’s chatterers await the launch this weekend of The Sun on Sunday, be prepared for a few, well, contradictions.

First, Rupert Murdoch is in London to exude confidence in his troublesome newspapers. Second, there will be a cut-price mini-boom in Sunday newspaper sales. Third, we will see an investigatory splash story with no trace of phone hacking, email interception or garbage-searching. The ironies will not, of course, be lost on Murdoch who will enjoy the moment. But the celebrations won’t last long. As he has reminded us, the enmeshed dailies are an insignificant part of News Corp profits in 2012. That’s why they will surely be sold or floated off if any one of the following seismic events occurs:

UK criminal charges relating both to The Sun and the News of the World

Since, many observers predict that at least two of the above developments will occur within the next six months, Rupert Murdoch should enjoy his short weekend in the err Sun while he can. The pictures of the Aussie-born mogul (81 next month), back where his fantastic adventure began 43 years ago – and involved in what he has always enjoyed most – will rankle with US shareholders and his ready-to-take-over American executives. This weekend’s smiling pictures and front pages will be just perfect for the corporate and personal obituaries to come. Just wait.

It is too ironic that the Sun King who pioneered multi-channel satellite television across the world – and who has seemed so well placed for this century – can make himself seem so much like a relic from the last one. But Murdoch can’t help himself.

Newspapers for a bite-sized world

This weekend, he will not give a moment’s thought to the newspapers that (more than any of his own over-staffed ones) look like tomorrow’s winners in a churning world of low-cost, bite-sized news. But, then, that is one important point about the changing of the media guard: there will be lots of new media types, channels and businesses. But some of the winners will also be new versions of the old – by new (or reformed) players.

Look at the rising success of the 20p i, the US Today-inspired cut-price daily from The Independent. It was the only daily to post a circulation increase in January figures that showed the whole UK newspaper market was down by at least 8%. The newbie’s 82% year-on-year growth means it has overtaken

The Guardian for the first time with sales of 243,000 v 230,000. Now, there are lots of health warnings over newspaper circulation claims including so-called ‘bulks’ whereby even the most prestigious (formerly ‘must-read’) newspapers are handed out free at stations, hotels and airports. But the i’s performance against The Guardian is something to savour.Witness editor Alan Rusbridger (nemesis of one Rupert Murdoch) saying last month that the 650 journalists on The Guardian and The Observer (two of Fleet Street’s most egregious loss makers) would be reduced to “only” 500 or so within five years. I almost don’t know where to begin. But let’s just start by saying that The Independent and i together have fewer than 200 journalists and Huffington Post fewer still. Rusbridger is used to being sniffy about The Independent‘s staffing as if his newspapers were in a different league. Well, they are alright. But, whether the Scott Trust charity is willing to fund The Guardian with almost the same resources as it did in the days when circulation and advertising revenue were many times what they are today is up to them. For the rest of ‘Fleet Street’, the get-real moments are approaching fast.

The i is a clever, lively newspaper that clearly still has a way to go. But it is another sign (like the Daily Mail‘s impressive Metro free dailies, and also Londons financial freebie City AM) of new ways to win with (sort of) traditional media. Alexander Lebedev, owner of The Independent, happens also to be a different kind of proprietor who challenges all prejudices about Russian oligarchs, and is perfect stuff for profile writers: he buys newspapers but never interferes in the editorial, is charitably funding newspaper startups in post-dictatorship Tunisia, and has been involved in a fist fight on Russian television. But he believes in change and experiment. The i is one example of a brave new strategy. And the London Evening Standard (which Lebedev owns jointly with the Daily Mail) is another: what may be one of the world’s best free papers seems to be edging closer to break-even – after decades of losing millions as a paid-for.

If, as expected, the i is named “Newspaper of the Year” at the British Press Awards next month, it will be suitable recognition for an entrepreneur who is bringing some new life to the UK market. (Perhaps Rusbridger and Murdoch will tweet their disdain together).

That’s how it is across the traditional media market where new-wave operators are shaking things up in a bite-sized world.

Network TV re-costed

Look at UK television, where ITV (under new management) continues to throw off profits but with a largely traditional approach to cost and revenue that will come to look distinctly old-fashioned and – over time – probably unprofitable too. As in Lebedev’s UK newspapers, the challenge to the status quo is also coming from an outsider.

The loudly self-confident Richard Desmond acquired Channel 5 for £104m just 18 months ago. The deal had the chatter predicting his downfall: “Now he’s in with the big boys, you just watch him fall on his face…” The talk thrilled Desmond who had heard it all before in his climb from trade magazines through skin flicks, OK! and the Daily Express. This is a man who knows how to make money from media.

Each time, Desmond has scored big by taking on incumbents and cutting costs. As a longtime magazine publisher, he has moved in on the “big” media of newspapers and now TV, and can see high cost and waste everywhere he looks. At the pirennially-lossmaking Channel 5, he quickly managed to save an estimated £12m of annual costs by lopping 25% off the workforce and a slew of senior people. But he is more of a hands-on creative than that sounds, with plenty of his own ideas and the guts to take chances. He can be rough and tough. Some of it is for show, but he has the kind of energy and competitive paranoia that makes him a formidable operator. Few of his rivals have anything nice to say about him. But Richard Desmond’s never worried about that.

It is 15 years since Channel 5 opened to the sassy tones of the Spice Girls. When Desmond bought the channel, he knew that the appearance of Posh & Co was almost the only time it had managed to attract a reasonable audience of young viewers. This was the TV channel which had consistently been able to lose millions – and Richard Desmond has not been the only media owner to wonder why its 4-5% audience share somehow could not be converted to a profit. He knew how, in Australia, Channel 10 had more than managed it, even in a market dominated there by two large commercial networks.

In 2009, RTL had managed to lose £36m on Channel 5. But fast forward to 2011 and Desmond flipped it to into profit in his very first year. In an echo of the decade before, when he turned an early profit from Clive Hollick’s formerly unprofitable Daily Express group, Desmond pulled off the same trick at Channel 5, with operating profits flowing – from month 3. The former ad sales rep and rock drummer knew exactly what he was doing when he snapped up “Big Brother” the reality TV brand that had helped him make millions in the 2004-2009 heyday of his weekly magazines. Critics sniped that Desmond had paid too much (reputedly £200m over five years) for the show, which had been dropped by Channel 4.

But Big Brother has delivered beyond his wildest dreams. It brought Channel 5 audiences of almost 2million – some 25% up on the previous year. And Desmond skillfully used Facebook to boost phone voting – and profits. The impact on the cinderella channel has been dramatic.

By January this year, Channel 5 had increased its sought-after 16-34 year old viewers by 74% and ABC1s by 20% in a single year. In December, there was clear evidence of what this means with a 27% increase in revenue, and new advertisers like Nokia, Coca Cola and Nokia.

It’s not the kind of story we have become familiar with from network TV, where ITV has again been preparing its shareholders for a ho-hum year. But, then, Richard Desmond has made a few media fortunes by winning against the odds. His target now is Channel 4 (the commercial operator curiously under State ownership) which traditionally has been able to notch up an audience 50% ahead of Channel 5, but with three-times its advertising revenue. Expect Channel 5 now to close that gap, and then to ramp up the pressure on ITV (with five times the revenue and a profit equivalent to Channel 5’s c£350m revenues). The breakthrough opportunities can come with web-connected TV, once a generation of cheap set-top boxes opens the market up in 2013. Expect some big TV moves from Richard Desmond over the next 18 months.

Magazines on a roll

The quietly-spoken Mike Soutar is not a ‘new media’ guru. He is (sort of) an old fashioned journalist-turned-publisher who: trained at Dundee’s legendary D.C.Thomson straight from school; edited, at 23, the lamented Smash Hits magazine in its 1980s heyday; lit the touch paper on 10 years of stellar growth by FHM in the 1990s; and launched magazines for EMAP and IPC.

With £4m of backing from several of his former bosses, Soutar left IPC to launch Short List, a free weekly magazine for men, in 2007. The keys to his project were magazines with high-quality, well-designed editorial, handed-out nationally to young commuters by disciplined, uniformed distributors; and guaranteed high-value audiences for advertisers at a time of huge readership decline among paid-for titles. Two years later, he doubled the stable with Stylist for young women. Shortlist Media took off. Last year, the company launched its pioneering daily email newsletter Emerald Street (named after its Clerkenwell location): think ‘Grazia meets Time Out’, with samples, offers – and up to 150,000 registered subscribers.

Today, the two free weeklies have a combined circulation of almost 1million: readers and advertisers love them. Soutar’s fizzing company of some 50 people has revenues of £15-20m and is soundly profitable. It is surely set to launch new “freemium” magazines (Soutar’s descriptor), just as his erstwhile colleagues across the shell-shocked, paid-for magazine market are wondering how they can, somehow, catch up. And, just as they are getting their heads round that, those same executives might just wonder whether the sparkling Emerald Street is even more significant than Soutar’s two free magazines and might yet propel Shortlist Media into ecommerce orbit – ahead of his leaden competitors.

It is almost too ironic that Soutar is so successfully re-creating the model for magazine-ish media at a time when the industry is trying hard to congratulate itself on “only” losing 2% of circulation in the latest ABCs. Like many stats, it tells only a fraction of the story and neatly hides the torment of magazine-centric businesses trying to get used to a world where consumers happily settle for (maybe) second-best when it is quick, convenient and cheap (or free).

The fact is that the three largest circulation magazines in the UK are free titles (including those from retailer John Lewis and the-more-of-a-threat-than-publishers-realise ASOS). Further, three of the largest women’s lifestyle magazines are also frees (including Soutar’s Stylist). So, the decline in total magazine copy sales has been partly “compensated” in the numbers by increased circulations of free titles. Nobody in newspapers makes the ‘mistake’ of adding free and paid papers together.

And, while it is reasonable to say that free magazines (whether Soutar’s ‘freemiums’ or retail sponsored or ecommerce-led titles) point the way to much of the future, such activity is almost exclusively outside the realms of the existing magazine market leaders, which continue to lose sales, market share, and profits. Once again, legacy operators are having trouble coping with the insurgents. And Mike Soutar is showing his former employers exactly what they are missing.

The unlikely trio of Messrs Lebedev, Desmond and Soutar are serving notice on many ‘legacy’ media operators that being best in the ‘old world’ may guarantee nothing more than having difficulty surviving in the new one. Enjoy this weekend’s champagne, Rupert.